FEMA rescinds insurance rules for nonprofits

Old policy forced nonprofits to bear deductible burden in next disaster

REBECCA MOWBRAY, New Orleans Times-Picayune

Published
5:30 am CDT, Tuesday, August 28, 2007

NEW ORLEANS — The Federal Emergency Management Agency has reversed an insurance policy that would have left nonprofits and public entities on the hook for millions of dollars in the event of disasters.

"We have rescinded that policy," said Gil Jamieson, the agency's associate deputy administrator for Gulf Coast recovery. "It has caused a real furor down here. This was not the message we wanted to send to the business community."

Hospitals, schools, museums and others were outraged after they found a little-publicized June 4 memo on FEMA's Web site saying that once the agency has paid an insurance deductible for a nonprofit or governmental entity, that group must begin paying its own deductible starting with the next disaster. Some large nonprofits have deductibles of tens of millions of dollars and are used to getting help from FEMA in paying them.

The rules spelled out in the memo also required groups that receive money from FEMA to carry insurance coverage at least to the value of their public assistance grants, a requirement that is difficult to fill with the limited insurance capacity on the Gulf Coast after Katrina.

Though the stricter levels of insurance coverage spelled out in the June memo have been rescinded, previously existing insurance requirements remain in place for nonprofits, and FEMA has vowed to revisit those requirements after consulting with the business community.

Jamieson said FEMA's original intent in developing the fact sheet was to make sure that groups don't buy the cheapest high-deductible insurance policy out there and sock the bill to the federal government when disaster strikes.

"The federal government should not be the first bearer of risk," Jamieson said.

But FEMA's concern is far from the reality of the Gulf Coast insurance market, where businesses are struggling to find insurance coverage at all and banks are forced to look the other way as borrowers are unable to secure the insurance required by their loans.

Moss said more discussions are needed about how to apportion the financial burden of insurance and disaster assistance between the government and individual entities.